This past month, I have had the opportunity to speak with several fellow Realtors face-to-face. That simple act is a sign that we are returning to a state of normalcy.
Broker tours are happening, open houses of resale properties are increasing, and July is the month of new construction home shows! People are getting out into public again, vacations are back, and everyone is looking forward to the return of the Iowa State Fair in August.
By all accounts, the real estate market and frankly, life in general, feels like we have emerged from a time tunnel.
There are lots of questions from both Realtors and the public floating around and I am going to share a couple of those questions and my thoughts this month as we are indeed on a path back to normalcy.
Has the Shortage of Homes For Sale Ended now?
This is probably the most asked question by home buyers that have been frustrated by the lack of homes for sale this past year.
The short answer is no. But the perception feels otherwise. The most active share of the real estate market is the single-family resale segment. The market is broken down into brand new homes and resale homes (pre-owned) and then both of these categories further defined as single-family and condo/townhome.
2021 year-to-date sales of single-family resale properties are accounting for 69% of all purchases this year. Single-family new home sales are 2nd at 15%, condo/townhome resale properties close behind at 12% and new condo/townhome properties with 4% of the overall market.
All four of these categories are still behind inventory levels of 2020 and even farther behind 2019 for sale levels, but I believe we are out of the tunnel and that our real estate market has made the turn. Looking at single-family resale, where the greatest demand is, we are more than halfway back to 2020 inventory counts with 950 of these types of homes for sale. (The low count earlier this year was 515 homes for sale) This same time last year we had over 1,350 single-family resale homes on the market.
A side benefit to homebuyers is that we are not seeing as many homes selling in hours or with multiple offers. We are also not seeing as many offers above asking price. That’s not to say there still aren’t some properties in certain popular areas that are still experiencing “shark-week-frenzy”.
What About Home Prices? If the Shortage Is Easing, Are They Still on The Rise?
One characteristic remains true in virtually any type of market. That is the law of Supply and Demand. Where there is high demand for a product and limited supply, there are those that are willing to pay more. If this process continues, then those selling see an opportunity to raise their prices with the confidence that there will be many willing to pay.
Because it takes 30–45 days for homes to go through the sale pending process, this data trails behind. As real estate sales peaked in early June, it is just now becoming evident that at least in the single-family resale category, the rise of median sale prices have also leveled off. The median sale price of this type of home at the end of July is right at $255,000—a $30,000 jump for this time last year. With additional homes entering the market, this number will almost certainly begin to trend downward as we move toward fall.
With the Number of Homes For Sale On The Rise, Are We Headed Toward A Buyer’s Market Anytime Soon?
This one is easy to answer. No, not for a while anyway. On the surface, it may feel as though the real estate market has totally changed, but keep in mind that the real estate market doesn’t react that quickly. In our area we identify three types of markets. Buyer’s Market, Balanced Market and Seller’s Market.
I’ve talked about this subject at length in the past, but the basics are that when there are more buyers searching for homes than there are homes for sale, sellers have the advantage and home pricing rises.
On the other end if there are more homes for sale than there are people searching for homes, buyers have the advantage, and the result is lower home prices. The sweet spot in the middle. When there are enough homes for sale to sustain between 4 and 6 months of buyer’s demand, home values remain steady, and buyers have adequate choices of homes to make offers on without the pressure of having to make a panic purchase.
The last time we experienced a Balanced Market was January of 2020—just prior to Covid-19. In fact, in a normal market, it would be typical for the real estate market to “balance out” near the end of a year and into the first month of the new year.
For our market to move into a Buyer’s Market, it would take a large increase of homes added to the inventory. Based on the current buyer demand, just to get to 6 months of inventory (defined as the amount of time it would take to completely sell out of all homes for sale), we would need to add over 7,000 homes to our current inventory of approximately 2,000 homes for sale.
Another way we could get back to a Buyer’s Market is if buyer demand dropped dramatically. In the same scenario, if we added only 2,500 more homes for sale bringing our count to around 4,500 and the buyer demand fell to half, we would then be in a Buyer’s market.
Complicated? It can be but stick with me in the coming months as we watch this statistic and many more trends.